The Department of Treasury has given its support to a cap in government investment in the National Broadband Network (NBN) project at AU$29.5 billion, and opening up infrastructure-based competition in competitive areas.

The funding figure was included as part of the Coalition's policy in the lead up to the last election, but speculation has been that NBN Co will require more to invest in the so-called multi-technology model NBN Co suggested as the way forward as part of its strategic review.

In Treasury's submission (PDF) published late last week to the government's cost-benefit analysis panel, the department said that the AU$29.5 billion in equity funding should be regarded as "fixed", and will only remain to be considered equity for NBN Co as long as there is a real return expected over the life of the project.

While Treasury said there should be at least one wholesale-only, open access fixed line provider across Australia, this should not prevent other companies from rolling out their own networks in places where it is cost effective for them to do so.

"It is important to note here that natural monopoly and competition are not mutually exclusive concepts. While it might be less costly for each geographic area to be served by a single network from society's perspective, it may nonetheless be profitable for firms to build duplicate infrastructure in certain low-cost geographies," Treasury said.

Treasury said that the government needs to not only consider the impact introducing infrastructure-based competition might have on the return for the NBN, but also the cost to consumers in low-cost areas where infrastructure-based competition has been banned.

In the event that competition was allowed, Treasury indicated that the result would see NBN Co facing a hit on its rate of return, with fewer customers in highly competitive areas to offset the cost of rolling out the network in high cost areas, meaning the prices for services on the NBN would either need to increase, or the cost of rolling out the network would need to be further subsidised by taxpayers.

But Treasury said that infrastructure-based competition should not be allowed during the building phase of the NBN, and the department encouraged the government to maintain the anti-cherry picking rules in the short term, and then reconsider the rules after the NBN has been completed.

It comes as TPG is moving ahead with plans to roll out fibre-to-the-basement services to 500,000 apartments and offices in the CBDs of Australia's largest capital cities. NBN Co has previously stated that the proposal could undermine the economics of the NBN project, and Communications Minister Malcolm Turnbull has indicated that the government's decision on whether to close the loophole TPG is exploiting will be based, in part, in the cost-benefit analysis panel's report due later this year.